NEW DELHI: Moody's Investors Service has said that Reliance Jio Infocomm racking up 72 million paid subscribers, which has made the telecom operator the fifth largest in the country by user base, is credit positive but the new entrant will continue to be a drag on parent Reliance Industries' cash flows for at least two years.

"This (subscriber additions) is credit positive as the subscriber enrolment reduces cashflow uncertainty of the telecom business, on which RIL has spent over Rs 1.7 lakh crore over the last six years,, the New York City headquartered credit ratings firm said in a statement on Wednesday. "Despite the success in achieving a large paying subscriber base, we continue to expect that Jio will remain a drag on RIL's cash flows for at least the next two to three years.,

It said that even if Jio were to generate revenue of about Rs 20,000 crore, it will not be sufficient to generate free cash flows as the company's spending on capex, which is expected to be at least Rs 15,000 crore per year, will be significantly higher than its earnings before interest, tax, depreciation and amortisation. Reliance Industries shares closed 3.2% higher at Rs 1,414.90, having touched an intraday high of Rs 1,417.95 on the Bombay Stock Exchange on Wednesday.

Moody's said that Jio Infocomm is trailing its nearest rival, state-run Bharat Sanchar Nigam Ltd., which has 100 million customers, and Tata Teleservices, which has 50 million subscribers. The combined Vodafone India-Idea Cellular entity leads the markwith close to 400 million users, while Bharti Airtel, including Telenor, is No. 2 with more than 300 million users.

The ratings firm said it expects a "significant portion, of the 72 million Jio Prime subscribers to opt for its .'303 plan, given that is the minimum plan that gives complimentary services for three months.

"Assuming all 72 million subscribers pay Rs 303 per 28 days for July 2017 to March 2018, Jio will be able to generate revenue of about Rs 21,300 crore for the fiscal year ending March 2018. In comparison, Bharti Airtel Limited's (Baa3 stable) Indian mobile services generated revenue of Rs 43,600 crore for the nine months ended 31December 2016,, Moody's said.

The firm said that Jio will need to continue to be competitive and maintain service quality at high levels in order to retain customers.

"The incumbent telecom operators are already expanding their 4G network coverage and are lining up price plans to compete with Jio's offerings... As a result we anticipate a heightened state of competition will persist at least for the foreseeable future,, Moody's said.

It said that since the price plan for non-Jio Prime subscribers is higher than that currently offered by the incumbents, Jio Infocomm may have to revisit its price plans beyond April 15 to attract and retain subscribers who do not sign up for the Jio Prime offering.

On February 21, the telco had said it had enrolled just over 100 million subscribers for its introductory offer of its telecom services under which subscribers were not required to make any payments until March 31. On March 31, it extended Jio Prime membership deadline by 15 days, enabling those enrolling to its services by April 15 by paying Rs 99 along with their first purchase of its Rs 303 or other plans of higher amounts to get services till July end on a "complimentary basis, under the 'Summer Surprise' offer.